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Amended And Restated Addendum To Fine Papers Supply Agreement

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SCHWEITZER MAUDUIT INTERNATIONAL INC | Philip Morris Incorporated

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Title: AMENDED AND RESTATED ADDENDUM TO FINE PAPERS SUPPLY AGREEMENT
Governing Law: Delaware     Date: 8/4/2010
Industry: Paper and Paper Products     Sector: Basic Materials

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AMENDED AND RESTATED ADDENDUM TO FINE PAPERS SUPPLY AGREEMENT

 

 

This Addendum, originally effective as of April 1, 1998 and as amended and restated effective July 1, 2000, by and between Philip Morris Incorporated, a Virginia corporation with offices at 3601 Commerce Road, Richmond, Virginia 23234, doing business as Philip Morris U.S.A. ("Philip Morris"), and Schweitzer-Mauduit International, Inc., a Delaware corporation with offices at 100 North Point Center, Alpharetta, Georgia 30022 ("SWM"), amends and supplements the Fine Papers Supply Agreement between the same parties.  The provisions of the Agreement, as amended and supplemented by this Addendum, shall be applicable to and govern Direct Purchases and Indirect Purchases of Banded Cigarette Papers hereunder.  Except as expressly amended or superseded herein, the terms and conditions of the Agreement shall continue in full force and effect. This Addendum is an Implementation Agreement, as that term is defined in Article I.AC of the Agreement.

 

RECITALS

 

1.

Philip Morris and SWM are parties to a certain Fine Papers Supply Agreement, originally effective January 1, 1993, which has been amended on several occasions and was most recently amended and restated, effective April 1, 1998 (the "Agreement") and executed prior to this Addendum.  Philip Morris and SWM have executed a second amended and restated agreement that will become effective July 1, 2000 and upon its effectiveness, such second restatement will hereafter be deemed the “Agreement’ for all purposes herein.

 

2.

Philip Morris and SWM are also parties to a certain agreement, effective November 13, 1992, to develop the equipment, processes and know-how required to manufacture Banded Cigarette Papers (as defined in Article 1.5 below).

 

3.

Philip Morris may, under the circumstances described in this Addendum, elect to purchase Banded Cigarette Papers from SWM, but in order to manufacture Banded Cigarette Papers for sale to Philip Morris and, potentially, other customers, SWM must upgrade and modify its equipment and processes at SWM's paper manufacturing facility in Spotswood, New Jersey (the "Mill").

 

4.

To induce SWM to make upgrades and modifications at the Mill to produce this new product, heretofore not marketed, and to undertake other measures to improve SWM's capability to produce current products at the Mill, Philip Morris has agreed to make advance payments to SWM in accordance with the terms of this Addendum against Philip Morris's future purchases of Banded Cigarette Papers and other Cigarette Papers from SWM.

 

 

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5.

Philip Morris and SWM also desire that the Agreement be amended and supplemented to incorporate special provisions for the purchase by Philip Morris, and the sale by SWM, of Banded Cigarette Papers.

 

NOW  THEREFORE, the Parties agree as follows:

 

ARTICLE 1 - DEFINITIONS

 

Capitalized terms not defined herein shall have the definition provided in the Agreement.

 

 

1.1

Advanced Payments — the payments to be made by Philip Morris to SWM as described in Article 4.1.

 

 

1.2

Aggregate Post Conversion Practical Production Capacity — as defined in Exhibit G hereto.

 

 

1.3

Aggregate Practical Production Capacity — as defined in Exhibit O hereto.

 

 

1.4

Agreement or Fine Papers Supply Agreement — that certain amended and restated agreement between the Parties, effective July 1, 2000, under which Philip Morris has agreed to purchase, accept and pay for, and SWM has agreed to manufacture, sell and deliver, Fine Papers.  As used herein, the term also includes future amendments to such agreement.

 

 

1.5

Banded Cigarette Papers — the various Grades of a Group of Cigarette Papers for use in forming Cigarette rods having integrated cellulosic bands that encircle the finished Cigarette rod to modify the mass burn rate of the Cigarette.  This Group is limited to Cigarette Papers whose bands are applied to the paper using a process that incorporates a moving orifice device (the "MOD Process").

 

 

1.6

Change of Management Control — a purchase by a cigarette manufacturing company or an Affiliate thereof of (a) any or all of SWM's Cigarette Paper manufacturing assets at the Mill, (b) more than [*****] of SWM's voting stock, or (c) [*****]or more of SWM's voting stock and, as a result of such stock purchase, [*****]

 

 

1.7

Conversion Period — that period commencing with the date Philip Morris issues the Notice to Proceed and ending with the date identified in the Conversion Schedule as the date by which the last of the Paper Machines to be converted to Banded Cigarette Papers production hereunder will be qualified to produce Banded Cigarette Papers.

 

 

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1.8

Conversion Schedule — as defined in Article 2.10.

 

 

1.9

Direct Purchase Requirements — has the same meaning as Buyer's Direct Purchase Requirements in the Agreement.

 

 

1.10

EDR — that certain engineering design report detailing the Parties' implementation strategy for the manufacture of Banded Cigarette Papers at the Mill, dated April 1997.  As used herein, the term includes (1) the amendments and updates to such report described by the letter agreement that is attached hereto as Exhibit A and (2) any subsequent updates that may be agreed upon in writing by the Parties (see, e.g. , Article 2.3.2).

 

 

1.11

[*****]

 

 

1.12

[*****] — the amount, if any, by which the [*****]   exceeds the [*****].

 

 

1.13

[*****]

 

 

1.14

Final Completion — shall occur when (a) the Work is completed in accordance with the Project Documents (including any testing and trials) to the extent that each of the Paper Machines to be converted to Banded Cigarette Papers production is ready for Qualification by Philip Morris, (b) all supporting documentation, drawings and manuals identified as deliverables in the Project Documents are delivered and Philip Morris has acknowledged that such documents conform to the requirements of the Project Documents, and (c) SWM has provided notices to Philip Morris that each of the Paper Machines to be converted to Banded Cigarette Papers production (other than any to which a change in the scope of the Work may be applicable) is complete and ready for Qualification.

 

 

1.15

Final Completion Date — the earlier to occur of (a) the date on which SWM provides Philip Morris notice of Final Completion and (b) six months after the day on which the last of the Paper Machines that is to be converted to Banded Cigarette Paper Production is removed from production for the Work required to prepare it for Banded Cigarette Paper production.

 

 

1.16

First Machine Completion — shall occur when (a) the Work associated with the first of the Paper Machines is completed in accordance with the Project Documents to the extent that such machine is ready for Qualification to manufacture conventional Cigarette Papers ( i.e. , Cigarette Papers other than Banded Cigarette Papers) by Philip Morris and (b) SWM provides notice to Philip Morris of such completion and readiness.

 

 

1.17

First Machine Completion Date — the date when SWM provides Philip Morris notice of First Machine Completion.

 

 

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1.18

First Machine Down Date — the day on which the first Paper Machine is removed from production for the Work required to prepare it for Banded Cigarette Papers production.

 

 

1.19

First Sale Date — the date after First Machine Completion Date that Philip Morris first makes a Direct Purchase or Indirect Purchase of one or more Bobbins of Banded Cigarette Papers.

 

 

1.20

Guaranteed Sales Period — the period described in Article 3.2.3 hereof.

 

 

1.21

Indirect Purchase Requirements — has the same meaning as Buyer's Indirect Purchase Requirements in the Agreement.

 

 

1.22

Individual Machine Completion — shall occur for each Paper Machine when (a) the Work associated with that Paper Machine is completed in accordance with the Project Documents to the extent that such machine is ready for Qualification to manufacture conventional Cigarette Papers by Philip Morris and (b) SWM provides notice to Philip Morris of such completion and readiness.

 

 

1.23

Individual Machine Completion Date — the date when SWM provides Philip Morris notice of an Individual Machine Completion.

 

 

1.24

Initial Commercial Production — after Philip Morris has issued the Notice to Proceed, the first day of the calendar month after the month in which SWM delivers Banded Cigarette Papers hereunder at an average rate of at least [*****] Standard Bobbins per month over a consecutive three-month period.

 

 

1.25

Laws — the federal, state and local laws, regulations and ordinances applicable to a Party's performance under the Agreement, including this Addendum.

 

 

1.26

Licensing Agreement — that certain agreement between the Parties, originally effective April 1, 1998, and as amended and restated effective July 1, 2000, setting forth ownership rights and granting licenses and [*****] rights respecting technology and patents concerning the manufacture of Banded Cigarette Papers.  As used herein, the term includes future amendments to such agreement.

 

 

1.27

Milestone Schedule — the milestone schedule set forth in Exhibit B hereto, which is incorporated by reference and made a part hereof.  This schedule identifies the durations (measured from the Notice to Proceed) within which SWM is to complete the Work prerequisite (a) to Individual Machine Completion for each Paper Machine and (b) to the manufacture of Banded Cigarette Papers generally at the Mill.  As used herein, the term includes updates to such milestone schedule that may be agreed upon in writing by the Parties (see, e.g. , Article 2.3.2).

 

 

1.28

Mill — SWM's Spotswood, New Jersey manufacturing facility.

 

 

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1.29

Mill Upgrade Project — that certain project to modify and upgrade the Mill to give it the capability to produce Banded Cigarette Papers, as more particularly described in Article 2 hereof.

 

 

1.30

MOD Equipment — the class 1, class 2 and class 3 equipment to be installed at the Mill as part of the Mill Upgrade Project, as more particularly identified in Exhibit C hereto.  As used herein, the term includes the equipment identified on any updates to Exhibit C that may be agreed upon in writing by the Parties.

 

 

1.31

Notice to Proceed — as defined in Article 2.1.

 

 

1.32

Paper Machine — in the singular, any of the No. [*****] paper manufacturing machines at the Mill, or in the plural, more than one or all of such machines, as the context requires.

 

 

1.33

Parties — Philip Morris and SWM.

 

 

1.34

Party — either Philip Morris or SWM.

 

 

1.35

Philip Morris Project Representative — the Philip Morris employee or agent designated from time to time in accordance with Article 8.3 hereof to be Philip Morris's on-site representative at the Mill during the performance of the Work.

 

 

1.36

Post Completion Performance Report — a report prepared by SWM to document [*****], such report to be in accordance with SWM internal accounting policies and substantially in the form of Exhibit P hereto.

 

 

1.37

Post Conversion Practical Production Capacity — as defined in Exhibit G hereto.

 

 

1.38

Practical Production Capacity — the capacity values set forth in Exhibit O hereto.

 

 

1.39

[*****]

 

 

1.40

[*****]

 

 

1.41

Project Documents — the EDR and certain additional documents identified in Exhibit J hereto.

 

 

1.42

Qualification — the demonstration by SWM, in accordance with Philip Morris's normal cigarette component qualification procedures, and the acknowledgement by Philip Morris, which shall not be withheld unreasonably, that a particular Paper Machine is capable of continuously and reliably manufacturing a particular Grade of Fine Papers in conformance with the Specifications that define such Grade.

 

 

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1.43

[*****]

 

 

1.44

[*****]

 

 

1.45

[*****]

 

 

1.46

Term of Supply — the period that Banded Cigarette Papers are to be purchased and sold hereunder as provided in Article 3.2.

 

 

1.47

Total Advanced Payment Amount — the aggregate of the Advanced Payments that are paid by Philip Morris in accordance with Article 4.1.

 

 

1.48

Total Project Cost — the aggregate of the Project Costs.

 

 

1.49

[*****]

 

 

1.50

Work — the specific tasks and actions to be performed and taken by SWM, directly or through its contractors, in implementing the Mill Upgrade Project, as further defined in the Project Documents.

 

ARTICLE 2 - MILL UPGRADE PROJECT

 

 

2.1

Notice to Proceed

 

Subject to Article 5.2.1, Philip Morris may issue a written notice directing SWM to proceed with the Mill Upgrade Project ("Notice to Proceed") at any time after the effective date hereof.

 

 

2.2

Prosecution of the Work

 

 

2.2.1

SWM Responsibilities

 

Upon receipt of the Notice to Proceed, SWM, to the extent that it has not already done so, shall provide, or cause to be provided through a contractor or contractors, all engineering, supervision, labor, procurement of materials and equipment, fabrication, construction and installation services appropriate and required to perform the Work, which shall include (a) performing the activities described in the Project Documents, (b) effecting any additional operational changes SWM determines to be necessary to manufacture Banded Cigarette Papers at the Mill, and (c) delivering all supporting documentation, drawings and manuals identified by the Project Documents to be delivered to Philip Morris, including but not limited to those [*****].  SWM shall be solely responsible for obtaining any construction or permanent financing required to support the Work and for the payment of all material or equipment vendors and contractors SWM may retain in connection with the Work.  The Work shall be performed in strict accordance with the scope of work set forth in the Project Documents and otherwise in accordance with this Addendum and the Project Documents.

 

 

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2.2.2

Project Objective

 

Through the Mill Upgrade Project, SWM shall exercise commercially reasonable efforts to upgrade and modify the Mill to the extent that upon completion of the Work the Paper Machines will be capable of manufacturing Banded Cigarette Papers that conform to the ranges of process and product characteristics identified in Exhibit E hereto, all while achieving the projected individual and cumulative Post Conversion Practical Production Capacities set forth in Exhibit G.

 

 

2.3

Milestone Schedule

 

 

2.3.1

The First Machine Completion and Final Completion shall occur within the durations (from the Notice to Proceed) indicated in the Milestone Schedule.  Time is of the essence.  Durations in the Milestone Schedule that may be applicable for any Paper Machine shall be extended to the extent Qualification of such Paper Machine is delayed by Philip Morris, but unless otherwise mutually agreed, a delay by Philip Morris to the Qualification of any Paper Machine shall not extend durations in the Milestone Schedule applicable to any other Paper Machine ( i.e. , work on other Paper Machines shall continue in accordance with the Milestone Schedule unless otherwise mutually agreed).

 

 

2.3.2

At Philip Morris’s direction, the engineering and project management contractor originally engaged by SWM was demobilized temporarily.  That contractor was subsequently remobilized for the limited purpose of updating the EDR, the project cost estimate, the Milestone Schedule and the Conversion Schedule, each of which are to be resubmitted to Philip Morris for review and acceptance following the completion of such update.  Such update is presently scheduled to be completed no later than September 1, 2000.  The purpose of such update is to permit the general remobilization of the contractor with minimal impact on the durations allowed by the current Milestone Schedule.

 

 

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2.3.3

If the engineering and project management contractor currently engaged by SWM is demobilized again prior to Philip Morris providing the Notice to Proceed, the durations allowed by the then agreed upon Milestone Schedule for First Machine Completion and Final Completion each shall be extended for a period to be mutually agreed, but not more than five months, to allow additional time for remobilizing and rebidding the Work, as necessary.  The Milestone Schedule also shall be adjusted to the extent that the delivery schedules of vendors and contractors to be engaged by SWM are different from the schedules on which the Milestone Schedule is based.

 

 

2.4

Project Management

 

SWM shall have sole responsibility for project management, which shall include procuring or arranging procurement of all the materials and equipment required for the Work and contracting for and administering all engineering, construction, installation and start-up services required to complete the Work.  SWM shall be responsible for seeing that the Work is prosecuted in accordance with such project schedules as it may maintain.  Such schedules shall be consistent with the Milestone Schedule.  SWM shall be solely responsible for seeing that the Work is performed in accordance with all applicable Laws, and for seeing that all on-site contractors have and implement safety programs consistent with paper industry practice.

 

 

2.5

Philip Morris Review and Approval

 

 

2.5.1

Philip Morris shall have the opportunity to review and approve (a) all material, equipment and process specifications and engineering, construction and fabrication drawings and (b) all bid packages, purchase orders, bid tabulations and contracts involving materials, equipment or services associated with the Mill Upgrade Project involving estimated Project Costs of $10,000 or more and (c) all change orders or amendments to purchase orders and contracts involving increases in Project Costs by $5,000 or more.  Such review and approvals shall be in accordance with a project procedures manual to be agreed upon by the Parties.  Philip Morris shall perform such reviews and provide approvals in a timely manner so as not to delay the scheduled progress of the Work provided SWM provides Philip Morris (a) timely copies of all contract documents requested by Philip Morris for Philip Morris's review and (b) reasonable notice of the review and approval schedule necessary to support completion of the Work in accordance with SWM's project schedules.  If Philip Morris fails to provide timely review and approvals pursuant to this Article 2.5.1 and such delay materially affects the Project Cost or SWM's ability to meet the Milestone Schedule, SWM may request equitable adjustments to the Milestone Schedule or the amount of Advanced Payments in accordance with Article 2.7.  In addition, Philip Morris shall at all times during the performance of the Work have access, for review and audit, to all purchase orders along with the most current drawings and schedules available to SWM with respect to the Work.

 

 

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2.5.2

Philip Morris shall have the opportunity to review and comment upon (but not to approve) all project schedules (i.e., schedules other than the Milestone Schedule) maintained by SWM and all revisions thereto.

 

 

2.5.3

The Philip Morris Project Representative shall have reasonable access to the Mill and to the Work throughout the period when the Work is being performed.

 

 

2.6

Changes to Project and Suspension of Work

 

 

2.6.1

SWM shall not authorize or permit any departure from or change to the scope of the Work unless Philip Morris gives its prior written consent to such departure or change.  The Philip Morris Project Representative   shall be authorized to grant written approval of such departures or changes and to act on Philip Morris's behalf in all matters respecting changes to the scope of the Work; provided, however, Philip Morris shall only be bound by approvals and consents given by the Philip Morris   Project Representative that are recorded in writing and signed by such Philip Morris Project Representative.

 

 

2.6.2

Philip Morris may at any time, by written notice, make actual or constructive changes in, additions to or deletions from the scope of the Work to be performed by SWM; provided (a) such change, by itself, or in the aggregate with other Philip Morris changes (excluding those Philip Morris changes as to which the amount of an equitable adjustment to the Advanced Payments has been agreed upon by the Parties), does not cause an increase in Project Costs in excess of $2,500,000, (b) such change does not require physical modifications to or replacement of Mill facilities or equipment otherwise unaffected by the Mill Upgrade Project, (c) such change does not adversely affect SWM's ability to produce the cigarette paper products that SWM has manufactured or is currently manufacturing at the Mill as of the date of SWM's receipt of the Notice to Proceed and (d) such change does not adversely affect SWM's ability to perform its obligations under the Agreement and this Addendum including, but not limited to, SWM's ability to manufacture Banded Cigarette Papers that conform to the ranges of process and product characteristics identified in Exhibit E.  Changes pursuant to this Article 2.6.2 may include, but are not necessarily limited to, directives by Philip Morris to reduce in number the Paper Machines that are to be modified to be able to produce Banded Cigarette Papers.

 

 

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2.6.3

Upon written notice from Philip Morris, SWM shall suspend performance of all or any part of the Work for such period as Philip Morris may direct.  Philip Morris shall not be liable or otherwise responsible for any Project Costs resulting from any unauthorized performance of the Work by SWM during any period of suspension , and upon receipt of Philip Morris's suspension notice, SWM shall not place further orders or enter into further subcontracts relating to the suspended Work.  Notwithstanding the preceding sentence, SWM shall notify Philip Morris and request authority to continue performance of all or part of the Work (a) to the extent that, in SWM's opinion, failure to continue or complete discrete elements of the Work will materially increase the overall Project Costs or (b) to the extent necessary to protect the Work in progress.  In addition, and whether or not Philip Morris consents, following receipt of a suspension notice from Philip Morris, SWM may take such actions as SWM concludes are reasonably necessary to restore the Mill's capability to resume the manufacture of Cigarette Papers other than Banded Cigarette Papers; provided, however, in arranging for the restoration of such manufacturing capability SWM shall undertake only those measures that are required to restore the Mill to a safe and operable state.

 

 

2.6.4

Additional Work performed pursuant to change orders submitted by Philip Morris pursuant to Article 2.6.1 or Article 2.6.2 or otherwise agreed to by the Parties shall be subject to all applicable terms and conditions of this Addendum.

 

 

2.7

Equitable Adjustments and Special Payments

 

 

2.7.1

If (a) any delay by Philip Morris pursuant to Article 2.5.1, (b) any change initiated by Philip Morris pursuant to Article 2.6.2, agreed to by the Parties or initiated by SWM and approved by Philip Morris pursuant to Article 2.6.1 or (c) any suspension of the Work, in whole or in part, initiated by Philip Morris pursuant to Article 2.6.3 increases or decreases the time required for performance of the Work, then an equitable adjustment shall be made to the Milestone Schedule.

 

 

2.7.2

If (a) any delay by Philip Morris pursuant to Article 2.5.1, (b) any change initiated by Philip Morris pursuant to Article 2.6.2, agreed to by the Parties or initiated by SWM and approved by Philip Morris pursuant to Article 2.6.1 or (c) any suspension of the Work, in whole or in part, initiated by Philip Morris pursuant to Article 2.6.3, increases or decreases the Project Costs, then there shall be an equitable adjustment in the   amount of the Advanced Payments to be made by Philip Morris pursuant to Article 4; provided, however, it is understood that any equitable adjustment in accordance with this Article 2.7 shall be intended to address changes in the Total Project Cost but, except as expressly provided in Article 2.7.3, shall not address or otherwise compensate SWM for any disruption or delay to Mill operations, lost sales or any other consequential or incidental costs SWM may incur as the result of the delay or suspension.  Project Costs increases incurred by SWM in performing Work within the scope of any Philip Morris change as to which an equitable adjustment in the amount of the Advanced Payments shall be applicable in accordance with this Article 2.7.2 shall be paid to SWM as Advanced Payments in accordance with Article 4.1 and not through Supplemental Capital Cost Charges pursuant to Article 3.5.3.2.

 

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2.7.3

Notwithstanding Article 2.7.2, Philip Morris shall reimburse SWM for verifiable, direct, out-of-pocket capital costs incurred by SWM that must be expensed and written-off by SWM as the result of (a) any delay by Philip Morris pursuant to Article 2.5.1, (b) any change initiated by Philip Morris pursuant to Article 2.6.2, agreed to by the Parties or initiated by SWM and approved by Philip Morris pursuant to Article 2.6.1 or (c) any suspension of the Work, in whole or in part, initiated by Philip Morris pursuant to Article 2.6.3.  In addition, in the event of a suspension of the Work by Philip Morris as permitted by Article 2.6.3, Philip Morris shall reimburse SWM for verifiable, direct and out-of-pocket costs SWM may incur in accordance with Article 2.6.3 to restore the Mill's capability to resume the manufacture of Cigarette Papers other than Banded Cigarette Papers.  Finally, if a suspension of the Work directed by Philip Morris as permitted by Article 2.6.3 is anticipated to last longer than three months, Philip Morris shall reimburse SWM for any lost profits that SWM may suffer during a period that one or more of the Paper Machines is not available to manufacture Cigarette Paper as the result of such suspension, but only for the period any of the Paper Machines shall be inoperable, such lost profits to be estimated in the manner set forth in Article 3.5.4.2.    Amounts payable by Philip Morris pursuant to this Article 2.7.3 are hereinafter referred to as "Special Payments" and shall not be considered Project Costs.

 

 

2.7.4

SWM's right to an equitable adjustment in the Schedule or in the amount of the Advanced Payments pursuant to Article 2.7.1 or Article 2.7.2 and/or any Special Payments pursuant to Article 2.7.3 is expressly conditioned on SWM providing Philip Morris notice of its intent to request such adjustment (a) within ten days after SWM receives Philip Morris's notice of change, (b) within ten days of the event relied upon by SWM as giving rise to any constructive change or (c) within ten business days after Philip Morris directs SWM to resume the Work following a suspension.  Within 30 days after the event giving rise to a notice by SWM in accordance with the preceding sentence, SWM shall submit its formal request for equitable adjustment or Special Payment, which shall detail SWM's justification for any proposed equitable adjustment or Special Payments, as the case may be.  The Parties shall attempt to resolve any request by SWM for an equitable adjustment within 30 days.  Philip Morris shall pay SWM any Special Payments due in accordance with Article 2.7.3 within 60 days after receipt of such formal request for such payment.

 

 

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2.7.5

SWM shall proceed with performance of the Work as changed prior to or pending agreement upon (a) any requested equitable adjustment in the Milestone Schedule pursuant to Article 2.7.1 and/or the amount of any Advanced Payments pursuant to Article 2.7.2 and/or (b) any Special Payments requested pursuant to Article 2.7.3 and shall not halt or delay performance because of any failure to so agree to any such equitable adjustment or Special Payments.

 

 

2.8

Monthly Reports and Financial Certifications

 

 

2.8.1

Following receipt of the Notice to Proceed, SWM shall provide Philip Morris monthly written reports on the status of the Mill Upgrade Project.  Such reports shall detail the progress of the Work and compare the actual progress of all significant facets of the Work to scheduled progress, reporting positive or negative "float" in the status of all "critical path" and "near critical" activities and identifying current and cumulative variances in actual Project Costs compared to the estimated Project Costs agreed upon by the Parties.  Such reports also shall include a forecast of activities for the coming month and a discussion of the safety performance of the contractors performing the Work.

 

 

2.8.2

Commencing with the calendar quarter prior to the date the second Advance Payment is due, and continuing through the calendar quarter in which the Final Completion Date occurs, SWM shall provide Philip Morris a certificate signed by SWM's chief financial officer representing that (a) SWM is not past due by more than 45 days in the payment of any vendor or contractor invoice related to the Mill Upgrade Project (excluding amounts less than $25,000 that may be in dispute and excluding invoices, the nonpayment of which Philip Morris has been notified in writing), (b) there is no pending or threatened action or proceeding, excluding any actions or proceedings relating to tobacco products, affecting SWM before any court, governmental agency or arbitrator that could reasonably be expected to materially and adversely affect the overall financial condition of SWM in a way as to impair its ability to perform the Mill Upgrade Project and (c) SWM is not in default as to any loan or debt instrument wherein a default by SWM would have a material adverse affect on SWM's ability to complete, or prevent SWM from completing, the Mill Upgrade Project as provided herein.  Such certifications shall be provided each calendar quarter in the month in which SWM files its Form 10-K or 10-Q, as appropriate, with the Securities and Exchange Commission.

 

 

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2.9

Project Meetings

 

At least once each month during the performance of the Work, the representatives of SWM and Philip Morris shall meet to discuss the progress of the Work, including but not limited to the activities discussed in the most recent monthly status report and the safety performance of the contractors performing the Work.

 

 

2.10

Commercialization Sequence

 

 

2.10.1

Following Qualification to manufacture Banded Cigarette Papers, each Paper Machine that has been modified to be capable to produce Banded Cigarette Papers shall be converted to full or part-time production of Banded Cigarette Papers in accordance with the conversion schedule and sequence set forth in Exhibit F hereto (the "Conversion Schedule"), which is incorporated by reference herein and made a part hereof.  Such Conversion Schedule reflects the most rapid schedule that SWM is able to accommodate while still continuing to meet Philip Morris's Direct Purchase Requirements and Indirect Purchase Requirements.

 

 

2.10.2

At its sole option, Philip Morris may elect to pursue a less aggressive schedule for conversion of the individual Paper Machines than that provided in Exhibit F or to reduce the total production capacity to be converted and qualified to be capable of producing Banded Cigarette Papers for Philip Morris, in which case Philip Morris shall so notify SWM.  Thereupon, the Parties, by mutual agreement, will modify the Conversion Schedule accordingly.  If such notice results in one or more of the Paper Machines not being converted and qualified to be capable of manufacturing Banded Cigarette Papers, SWM shall determine the Paper Machines to be converted and qualified and the sequence of conversion for such machines but in doing so shall seek to minimize the Project Costs, Pre-Operating Costs and Reimbursable Costs.

 

 

2.10.3

Philip Morris and its representatives shall have reasonable access to the Mill during trial runs on the converted Paper Machines for the purpose of monitoring the trials and sampling the Banded Cigarette Papers produced during such trials.

 

 

2.11

Project Accounting

 

Within 90 days after the Final Completion Date, SWM shall provide Philip Morris with an accounting of the Project Costs incurred.  Such accounting shall be in sufficient detail for Philip Morris to verify, to Philip Morris's reasonable satisfaction, the Total Project Cost and the proper allocation of such costs to the categories of Project Costs specified in Exhibit D hereto.

 

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ARTICLE 3 - PURCHASE AND SALE OF BANDED CIGARETTE PAPERS

 

 

3.1

General Applicability of this Article 3

 

As indicated herein, the provisions of this Article 3 amend and/or supplement the terms of the Agreement as regards Banded Cigarette Papers delivered through Direct Purchases and Indirect Purchases hereunder.

 

 

3.2

Term of Supply

 

If a Notice to Proceed is given by Philip Morris pursuant to Article 2.1 hereof, the period that Banded Cigarette Papers are to be purchased and sold hereunder (the "Term of Supply") shall be the same as the Term as defined in the Agreement, except that:

 

 

3.2.1

[*****];

 

 

3.2.2

A notice of termination of the Agreement by SWM pursuant to Article III.A thereof will not be effective to terminate the Agreement with respect to SWM's obligations to sell and deliver Banded Cigarette Papers sooner than the twelfth anniversary of the Initial Commercial Production Date.  Notwithstanding the preceding sentence, such a notice of termination shall terminate the Agreement with respect to SWM's obligations to sell and deliver Fine Papers other than Banded Cigarette Papers as provided in Article III of the Agreement;

 

 

3.2.3

A notice of termination of the Agreement by Philip Morris pursuant to Article III.A of the Agreement shall not be effective to terminate the Agreement with respect to Philip Morris's obligations to order, accept delivery and pay for Banded Cigarette Papers sooner than seven years after Initial Commercial Production, which seven-year period is hereinafter referred to as the "Guaranteed Sales Period" both for purposes of this Addendum and as that term is used elsewhere in the Agreement (but only in the context of purchases and sales of Banded Cigarette Papers, i.e., not other New Products).  Notwithstanding the preceding sentence, such a notice of termination shall be effective to terminate the Agreement with respect to Philip Morris's obligations to order, accept delivery of and pay for Fine Papers other than Banded Cigarette Papers as provided in Article III of the Agreement;

 

 

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3.2.4

Notwithstanding Article III.B.3 of the Agreement, in the event of a termination of the Agreement by either Party as the result of a reopening of the Agreement by SWM pursuant to Article VIII.K.1 due to a change in Laws, such termination shall not be effective to terminate the Parties' obligations to sell and purchase Banded Cigarette Papers sooner than the twelfth anniversary of the Initial Commercial Production Date; and

 

 

3.2.5

This Addendum shall be terminable by Philip Morris as provided in Article 5.2.2 or Article 5.2.3 hereof and by SWM as provided in Article 5.2.1 hereof.  The consequences of such a termination by either Party are discussed in Article 5.3 hereof.  In addition, the


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